Low interest loan for Business School
Hi All-
While working I have saved enough to cover most of the costs I expect to incur while in Business School over the next two years. This leaves me with two options: 1) Have the funds conservatively invested and slowly remove money as needed to pay Bschool expenses, while still keeping market exposure for the money that wont be needed until late in the program. Or 2) Use the funds as collateral to take out a low interest loan (I've been quoted for ~3%) which is far more favorable than the, as I understand it, typical 9%. This would allow me to keep the funds fully invested for the duration of b-school. As long as I anticipate a market return in excess of 3%, including a margin of safety, then presumably this would be an attractive option.
Any current or past MBA's have experience with this? Any thoughts?
Appreciate your input
Keep it invested.
At a 3% rate, even just doing a 5% yield from an investment and paying it off when the grace period ends you'll pay off the loan have a healthy amount leftover.
Don't forget taxes on your gains. But you should be able to beat 3% investing.
9%? Federal PLUS loans are fixed at ~6.5%. Unless you don't have access to those for some reason, I'm not sure why you'd pay more. Also, if you're using personal savings as collateral, are you allowed to invest it? With an 18-24 month time horizon, do you really have a capital-preserving investment option with >5% return?
On the positive side, you'll be able to take the student loan interest deduction. Also, many states offer tax-advantaged 529 plan. In IL, for example, you'll get a 5% deduction on up to $20k/yr invested = $1,000 x 3 yrs = $3k. Put it in, take it out a week later, claim deduction.
I'm not particularly risk averse, but I would leave it in a low risk account (1%) and withdraw as needed.
origination fee?
Yes, pretty sure all fed loans do. Many privates don't. I went all private/variable.
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